Episode 20: How traditional brands and IP rights are entering the metaverse

Lisa Desjardins, host (Lisa): You're listening to Canadian IP Voices, a podcast where we talk intellectual property with a range of professionals and stakeholders across Canada and abroad. Whether you are an entrepreneur, artist, inventor, or just curious, you will learn about some of the real problems and get real solutions for how trademarks, patents, copyrights, industrial designs, and trade secrets work in real life. I'm Lisa Desjardins, and I'm your host. The views and opinions expressed in this podcast are those of the individual podcasters, and do not necessarily reflect the official policy or position of the Canadian Intellectual Property Office.

In this podcast, we'll skim the surface of a simmering and new world of intangible assets that exist exclusively online, the metaverse. You may have heard of some of it through terms like NFTs, the blockchain, cryptocurrency and so on. Through the lens of intellectual property, the protection of online creations, brands, design and functionality is familiar especially through the gaming industry and software, where all forms of IP play an important role.

But what is happening now is different. Through the metaverse, we now see a growing online marketplace where virtual things like brands, artwork and avatars are used and sold or copied without authorization.

The concern for owners and creators is often directly connected with intellectual property and how this right can be applied, protected and monitored. To quote today's guest, "intangible rights in an intangible world."

So what are lawyers and IP professionals witnessing when it comes to IP in the metaverse? To learn more, I discuss with Bridget Chan, who is a lawyer and trademark agent and the head of Bereskin & Parr's Montreal office. Bridget is one of the 2022 and 2021 Best Lawyers Directory in Canada and listed amongst the 2021 leading trademark professionals in the world Trademark Review 1000, which is an international list of the leading professionals that are deemed outstanding at obtaining, protecting, managing, enforcing and monetizing trademarks. Last year, Bridget received the 2021 Order of Merit from the University of Ottawa Civil Law Section.

Welcome to this podcast!

Brigitte Chan (Brigitte): Hi Lisa, thank you for having me.

Lisa: Some of the world's largest brands are creating and protecting intangible assets meant for this intangible world. What are these intangible assets and how are they protected?

Brigitte: Indeed, some of the world's best known brands are entering the metaverse. It is certainly a very hot topic that I've seen being spoken about at every conference I've been to lately, and it's definitely been the subject of many articles.

The intangible, or digital, asset can be anything and everything ranging from artwork, consumer goods to virtual establishments like retail stores and restaurants in a virtual environment. Let me take a step back for those listeners who are still not sure what the metaverse is all about.

The metaverse is basically a virtual space where people can socialize, play games or work. It has been around for a while but has gained momentum with the popularity of virtual social interaction, and I think pandemic lockdowns have surely played a role in propelling the movement towards this virtual social interaction. The space, as we now know it, is mostly to interact in virtual environments via different platforms, and there are quite a few out there that I've come across in my research. Common ones are OpenSea or Decentraland, for example.

Some platforms are just for socializing or for gaming, and many of them allow for the purchase of digital assets, whether as a collectible art piece or a wearable for your avatar in a gaming setting. And these digital assets are purchased in the form of NFTs, or nonfungible tokens, a term I'm sure you've heard of quite a few times now.

Lisa: Yes, and I think it's hard for people to understand because essentially these items are normally physical like a collectable art piece or a wearable. But now we're talking about something that is not something you can touch. So, let's talk about the nonfungible tokens. We hear that term, nonfungible token, all the time. But what is it?

Brigitte: Well, I actually had to break it down myself to fully understand it. What's the nonfungible? What's the token aspect? From what I understand, and by no means I'm not a highly technical person, so a token, from what I understand, is a digital object representing the right to perform some operation, and there are many types of different tokens. Some of them can be for a useful purpose, for security or for currencies such as Bitcoin or Ethereum.

The fungible aspect of the token is that it can be exchanged for another token based on the premise that each token is equivalent and has the same value. But in contrast, here we're talking about nonfungible tokens, so which means that it's a unique set of data stored on a blockchain. And it has its own value, and it can be replaced by another nonfungible token, hence its traceability. So these digital assets, like a digital piece of work, can be tokenized with an NFT so that it becomes unique and traceable, and that's why NFTs hold value just like any other physical asset and it can't simply be copied without being purchased. So, you know the different types of digital assets can really be anything.

The common types that we're seeing these days are artwork, some consumer products like wearables for your avatar, and I think there's a platform called land deed, where you can actually buy real estate and you can create retail stores or restaurants, and branding becomes really important in that environment.

So, we're also seeing many luxury brands getting involved or being infringed upon in the metaverse, such as the, I'm sure you've heard about the meta Birkin bag, which is a digital reimagination of the Hermès staple Birkin handbag that was released in the virtual world by an artist named Mason Rothschild. So, needless to say, that that has been the subject of a very high profile court action to follow.

Lisa: Hmmm … and these values because trademarks can be renewed for essentially as long as you want and as long as you use them correctly, the value of the brand is enormous. So I can see even in a virtual world that they would become really important. In the real world, trademark laws are basically there to protect the consumer and most often then prevent a hurried consumer makes a purchasing decision based on confusing information. So you wouldn't want this to happen in real life and you wouldn't want it to happen in the metaverse. But how applicable are these laws in the metaverse?

Brigitte: Well, in my view, in the metaverse, protectable IP assets can vary from copyright to trademarks like slogans, logos, brand names and even trade dress indicia, whether it's in the form of a design or packaging trade dress or even patents for particular invention, especially in the technology.

In terms of trademark law, I really don't see how the metaverse can escape from application. Like whether there's infringement that occurs in real life or on the internet as we know it or other forms of virtual reality platforms, I think the same law should apply and the same test for consumer confusion should apply, albeit there may be nuances required to make it apply to the particular interaction that's being involved. But I certainly don't think there's anything particularly new here such that IP law would not apply.Let's take the gaming industry for example. It's very common for video game publishers to collaborate with big brands like Lego and Disney. And these game developers can't just use anyone's trademarks that they want. There are licences in place. So game developers and brand owners are familiar with product placement, branding, partnerships, licencing. And they are aware of trademark infringement within this context. So I see no reason for the same laws not to apply to meta social gaming platforms. So I think the hurdle is going to be more, or is, more on the enforcement of IP rights in the metaverse.

Lisa: And in terms of IP protection, it is becoming real, indeed, with enforcement of IP rights. I mean, this isn't just a tech game. This is real lawsuits with real money. What are the IP professionals witnessing in this space?

Brigitte: Well, we're definitely seeing more requests for advice on how to protect clients' brands in the metaverse and how to enforce their rights in the metaverse. And you're right, it isn't just a game. There are real lawsuits being launched with real money involved. Like some NFTs are being sold for incredible amounts of money, and there are a handful of cases to be followed very closely.

So one is regarding the meta Birkin bag that I was talking about earlier. And one involves Nike, where Nike sued StockX for using its famous trademarks, like Nike and Air Jordan, where StockX was minting NFTs at a very highly inflated rate. StockX is a reseller of merchandise online and entered the NFT marketplace. So Nike sued in the US to stop StockX from this unauthorized use of its trademarks for its NFTs.

So you know, we are talking about real cases, real infringement issues. And Nike is seeking substantial monetary damages from StockX. So certainly there are real-life consequences. You know some of the grounds relied upon by Nike and this suit involves trademark infringement, false designation of origin, unfair competition, trademark dilution, even common law trademark rights.So definitely we are seeing real-life instances where it's impacting the brand owners. And some of the questions that that clients are asking as, "Well what should we do?," "How do how do we protect our rights?," like "Should we be filing trademark application for the metaverse, and if so, how do we describe that?," "How do we, you know, concretely identify what we'll be using our brands in connection with in this world?"

So, there has been, I think, a real uptick in trademark filings for NFT- and metaverse-related goods and services. You know, part of the problem with that is you know it takes a long time right now for trademark applications to get prosecuted and issued to registration in Canada. But in the US, where many brand owners filed first, they do have use requirements. So you know, filing for NFTs is one thing, but if they have to meet use requirements to get a registration, that means they do have to enter the market. So if they want trademark registration protection, then ultimately it means that they have to get involved and they have to enter the metaverse in order to support their trademark applications in countries where use is required before you get registration.

And I've spoken to a few luxury brand owners, you know just kind of talking with them and getting their sense of why they even want to get into this space. And one brand owner told me, "Well, you know we want to be one of the leaders here you know, in this emerging industry." And I think that rings true for many leading brand owners is that the first mover in any emerging industry is the one that's going to shape the landscape and the law in this industry, so I think that's really great.

And companies have to think about where they think they will be and where their consumers are and where infringement will be occurring. So there there's a lot of discussions going around.

Lisa: And it sounds like the ties between NFTs and trademarks is obviously the first point of interest, but I think the consumers themselves, or the ones that are trading NFTs, they make mistakes sometimes. I know that there are some misconceptions about NFTs, especially when it comes to copyrighted work and owning an NFT that's tied to a copyrighted work, and so I was wondering what some of the misconceptions that you think are around NFTs?

Brigitte: Well, the one common misconception that I've heard of, or that I know of, is thinking that owning an NFT gives you all rights in the NFT, including the underlying copyright in the actual work. Where, in fact, ownership of an NFT gives the holder of the right to the tokenized item, whether it be a digital piece of art or the particular digital asset. So it is very separate from owning the IP itself.

Think of it at like buying a DVD of a movie. You own the DVD because you bought it. But you don't own the copyright in the movie, so you can't mass produce it and sell all your copies. You only bought and own your DVD. So you when you buy an NFT, that's really what you own, is that particular digital asset that's been tokenized. I hope that makes sense [laughing].

Lisa: Yes, that's a great way to explain it. Thank you. It is a new market. We read about multimillion dollar exchanges and transactions happening in this market. Where do you see this new market going if the current IP laws indeed apply?

Brigitte: Well, for now I think only time will tell, right? I think that you know we're watching a certain number of cases to see how they unfold, to see what remedies are available to brand owners dealing with, for example, counterfeit digital NFT goods, and the practical measures as well that are available to them.

You know, for example, even if a brand owner is successful in a court action and you know trademark infringement has been found, you're not dealing with physical, counterfeit goods here that can just be sent off and shredded and be destroyed. Here you're dealing with an NFT that requires you know what the lingo is that "burning," you got to "burn" the data and remove it from the circulation so that the NFT just can't keep circulating. So first you know, although you can trace the NFT, it's not that simple to remove it altogether. So I think that's a practical issue that remains to be seen on how that's going to be dealt with. You know, injunctions may very well play a part in preventing the sale of the unauthorized NFTs on virtual marketplace platforms. But in the end, maybe that's all we care about. Maybe that's all we want is to get it off these metaverse marketplaces. And whether you actually need to destroy the NFT is a secondary issue or an issue that doesn't really mean anything in the end if you, if you can't sell it.

But on the flip side, because an NFT can be traced, maybe in the future, we'll see a new revenue stream for creators and artists who are creating and minting NFT products or items, assets, and trace how they are being circulated. For example, maybe an NFT can be programmed so that creators receive a royalty every time it's sold and resold. I really don't know, but I'm sure somebody out there somewhere is already working on that.

But IP practitioners, I think we need to just dive right in and what I mean by that is try it out you know, get involved in some on some metaverse platforms so that you can practically understand in real life how it works you know. And I think then you can really identify and understand the nuances in the application of existing laws and how it can apply to this new virtual way of life. You know I think back to when the internet was first introduced, you know, everybody was like, "Oh my goodness, how am I going to protect my rights online?" Well, you just need to embrace it, and as time goes on as the courts address various issues, the law develops and we all develop with it. So we need to embrace the metaverse I think.

Lisa: Yes, there are probably a lot of opportunities to try it out. We hear about these platforms almost every day these days. But I was going to ask you, in terms of in real life, what personal experience do you have in the metaverse?

Brigitte: Oh gosh! I'm really still in the learning process. I've never been a gamer, so and I'm not a big online shopper either, so I'm learning. But in fact, I did get involved and I got on board on an NFT drop initiative by the GAP where they were dropping NFT hoodies. And so I'm like, "OK, let me just try this out" and, you know, I downloaded the app and figured it out, like how to buy an actual NFT and I think what's involved with, from what I remember, is that they had drops on a particular day for various virtual hoodies and you had to buy a number of them at each level until you reach a final level where you can qualify, or trade in your other hoodies, for the ultimate hoodie that was in collaboration with an artist. And in the end, I think that ultimate hoodie would have cost you about $500. But fortunately, or unfortunately, I only made it past the first level. By the time the second drop happened, I logged in and I tried to buy more, but all of the hoodies were sold out, which baffled me! I just didn't understand how can this happen. Like how can something not physical actually sell out? But I guess that's the whole point: there's the buzz created about that you need to buy it as soon as possible. So it was an interesting experience nonetheless. And in the end, I guess I have a few NFT, you know, hoodies somewhere out there. I don't even know how to retrieve them really. But if somebody is looking for an NFT virtual hoodie by the GAP, just let me know [laughing].

Lisa: [laughing] That's really great, Brigitte. You've shared so many interesting points, and I think it's clear that this is an area in continuous development. So I guess we'll just have to stay tuned. Thank you so much for coming to the podcast and giving your perspectives.

Brigitte: Thank you very much. There's so much more that can be said, so definitely let's keep an eye out for how things develop.Lisa: Thank you.

Lisa: You've listened to Canadian IP Voices where we talk intellectual property. In this episode, we met with Brigitte Chan, who is a lawyer and trademark agent as we wanted to learn more about the links between IP and online assets sold in the metaverse and the kind of questions and cases that the IP professionals are seeing as this market is growing. To explore more online about Brigitte's observations, open the description to this episode, where you will find a link to her series of articles on IP metaverse.